Trump’s gestures towards China, international fund inflows boost Hong Kong market turnover

Analysts expect market rally to continue until at least April when Europe undergoes a series of presidential elections

PUBLISHED : Sunday, 12 February, 2017, 7:54pm
UPDATED : Sunday, 12 February, 2017, 11:03pm

The rally in Hong Kong’s stock market and the increase in turnover for the week ending February 10 are likely to continue until the end of the first quarter due to an expected increase in international fund flows after a thawing of the relationship between the United States and China, according to analysts.

Turnover in Hong Kong’s stock market increased to a daily average of HK$82 billion last week, up 44 per cent from January’s HK$57.2 billion daily average. The figure is a 22 per cent rise from the daily average daily last year although it is still down 22 per cent from HK$105.6 billion median seen in 2015.

The benchmark Hang Seng Index rose 2 per cent last week to close on Friday at 23,574.98 points, the highest in four months.

“The reason for the stock market rally is US President Donald Trump who has made a number of friendly gestures towards China. Meanwhile, he has also announced policies that will benefit the business and banking sector. This boosted Hong Kong market sentiment and this is unlikely to change until the end of March,” said Jasper Lo, the chief strategist at King International.

Lo said an improved Sino-US relationship and the news of certain relaxations on banking regulations were positive factors raising market sentiment. In addition, Trump is going to announce details of a tax cut plan aimed at boosting the economy that will likely attract investors to come out spending.

“The friendly gestures among the two political leaders of the US and China removed market worries over a potential trade war between the two countries. The positive sentiment is likely to continue until early April when Europe will start a series of presidential elections,” Lo aid.

On Thursday, Trump sent a letter to Chinese President Xi Jinping containing a Lunar New Year greeting and a vow on developing a constructive relationship between the two countries.

A day later, Trump reaffirmed the US position on the one-China policy in his first telephone call with Xi, since taking office in January.

“The market looks positive. The US stock market has rallied for three months and the Dow Jones closed above 20,000 for the first time in history last month. Many investors now consider the US stock market is too high and have shifted their focus to Asia and Hong Kong which remain cheap,” said Joseph Tong Tang, the chairman of Morton Securities.

The price-earnings ratio of the Hang Seng Index stood at 11 times on Friday, compared with the Dow Jones at 20 times, the S&P 500 at 24 times, Shanghai at 16 times and Shenzhen at 42 times.

“The turnover has increased as international funds flow into Hong Kong. This is also because of mainland investors coming to the city to buy Hong Kong listed H shares (shares of mainland-incorporated enterprises which are listed in Hong Kong and denominated in Hong Kong dollars) which are cheaper than their A-share counterparts,” Tong said.

Many investors now consider the US stock market is too high and have shifted their focus to Asia and Hong Kong which remain cheap
Joseph Tong, chairman, Morton Securities

He added that the stock connect cross-border trading scheme has seen more money come from the mainland to trade Hong Kong stocks than international money going north to trade A shares.

The two stock connect schemes link the Hong Kong stock market to the Shenzhen and Shanghai stock markets and allow investors access to stocks on each side subject to quotas.

The flow of funds into Hong Kong market is also related to some mainland enterprises which had prepared money for overseas acquisitions only to postpone their plans after Beijing imposed curbs on capital leaving the country.

“Instead, Beijing has allowed these mainland companies to use the money to invest in stocks in Hong Kong which has boosted local market turnover. The liquidity of the local market is on the rise and will support the market rally for the next few months,” Tong said.

Alexander Davey, the director and senior product specialist at HSBC Global Asset Management, is also optimistic about the outlook.

“In the US, profit momentum has slowed with a stronger US dollar, energy price weakness and higher wages. However, following the presidential election, there are increased expectations of favourable tax reforms, increased fiscal spending and reduction in regulations, which are seen as supporting revenue growth and higher margins,” Davey said.